Unravelling the Contract Rights Renewal knot

Unravelling the Contract Rights Renewal knot

Commercial TV’s CRR has protected advertisers to the tune of several billion pounds – but the market has changed, and so too must the regulation. By Bob Wootton

In 2003, Granada and Carlton sought to merge, finally consolidating ITV’s English stations and all its airtime sales into ITV plc.  The UK’s then competition authority, the Competition Commission (CC), envisaged potential abuse of a dominant position and investigated.

Telly was the biggest game in town and advertisers took much keener interest than they do today.  Having felt royally duffed over by ITV almost since its inception in 1955, they bristled against the idea of a single broadcaster controlling well over half of all ‘their’ precious airtime and all but seven of the top thousand shows.

I led for ISBA.  After much work and expenditure all round, the CC team under the inspiring late Professor Paul Geroski was persuaded that the merger would have adverse consequences unless appropriate remedies (interventions which might allay such concerns) were imposed.

Most suggestions were convoluted and/or pony but ITV concocted something clever and appropriate which, after due tyre-kicking, was adopted (after I’d corrected a little wobble with the daunting formulae).

Thus was the snappily-named Contract Rights Renewal, or CRR, conceived.  Implemented in less than three months, it demonstrated statutory regulator power and has garnered a global reputation as one of the more successful competition remedies ever implemented.

It stood to protect advertisers from price hiking by guaranteeing them the same terms year-on-year if they did too.  Most advertisers and media agencies embraced it as it eased their usually-fraught annual negotiations.

…then along came online

By industry consensus, TV is mainly traded and clears on a price relative to the market rather than a fixed price which risks unsold inventory or premature sell-out (I witnessed both in my early career).

The fundamentals of deals are buyer commitment to a (high) share of total TV spend in return for seller delivery of a (keen) price relative to its average.

It’s illegal to attempt to influence what a competitor might receive but it’s OK to trade a figure which might then constrain what’s available to other parties.  Yup.

Over time, CRR protected Britain’s advertisers to the tune of several billion pounds.

But the world turned.  Online is now the dominant medium, taking over half of all adspend and ‘GooBook’ much of that.  TV is no longer supreme – more’s the pity as advertising’s standing and effectiveness have tracked TV’s decline.  But that’s for another day.  And Thinkbox.

And TV has changed – channels, providers and platforms have proliferated and it has evolved, whether in the form of AVOD or addressable – which promises the power of TV with the granularity of online.

However, its commercial progress is being suffocated by an ageing CRR remedy designed for a linear world.

When Sky first introduced AdSmart, the UK’s first and most-developed addressable offering, it sought to encourage existing advertisers to up spends whilst attracting many new ones.

Surprisingly, addressable TV is currently considered part of an advertiser’s overall TV spend so it’s included in the shares which advertisers place with sales houses.

The share corset which much of the industry finds so convenient and is perpetuated by CRR means existing advertisers can only redistribute funds.  Many choose broadcast (reach, cheaper cost per viewer) over addressable (targeted, higher cost per viewer).

They can’t spend incrementally on addressable unless they also up their spends with other broadcasters in proportion to the share deals they or their agency have contracted to.

Which leaves addressable with the long tail.  Fair game but not the main course and disappointing reward for diligently and patiently developing something new and excellent.

Advertisers moving into TV can also disrupt big agency/media owner deals with consequences across their client base.

The print sector showed us how deadly its own trading behaviours could prove in the face of stiff new competition.

Regulation of only one player is an obsolete solution to narrow historical market power concerns when we now have three equally-large sales points, themselves overshadowed by two dominant online competitors.

A remedy born of and intended for a linear spot advertising age is perversely compromising the returns of UK-licensed broadcaster innovation, thereby assisting unregulated overseas competitors.

Things have moved on.  Regulation hasn’t.

Regulating effectively

How to unravel this knot is another knot in itself.

Advertisers are in no hurry to contemplate change to something few really understand which will lead to something different for most not to understand either.  They’re rightly sitting tight but also wondering why ITV hasn’t called for change and tabled alternatives for consideration.  Few recognise that they should be mindful of the sustainability of key media partners either.

Agencies once used to lobby hard for their clients’ wider interests.  Now it’s all about the contract – they get the issues but are not inclined to engage.  Media buyers are rocking along just fine with CRR while they focus on other things like how to make money in a way that’s invisible (and therefore acceptable) to procurement, who have cut visible margins to bone.  Other addressable offerings are emerging, though some big buying points might therefore be eyeing these as something to mark up quietly.

And the broadcaster doesn’t seem too fazed either.  It appears leery towards drawing its regulator’s attention, suggesting Ofcom might be rather heavy-handed or fearsome.  The commercial team has learned to live and operate profitably within it – perhaps because, perversely, it can hamper competitors even more?

What of Ofcom’s long-serving independent CRR Adjudicator?  It’s beyond his remit – though certainly not his wit, from which Ofcom could benefit.

So to the regulators.  The current competition regulator, the Competition & Markets Authority, seems more engaged at last.  And Ofcom is now seen as its gateway to any intervention given its spread in recent years.

Ofcom must somewhere carry a torch for the success of what it regulates.  Regulating things out of existence is neither sustainable nor something to be proud of, whereas regulating effectively while fostering business health is.  Good regulators understand this.

Ofcom is well-resourced and employs some of the best whose intellects are well up to this challenge.   Given the circumstances, regulators should apply light-touch and fast-track principles, but for now at least, CRR and TV market dysfunctions seem to be beyond the horizon of interest.

A powerful Ofcom alone holds the key – but will it act?


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